According to Credit Suisse North America:
Rating UNDERPERFORM* [V]
Price (25 Feb 13, C$) 3.43
Target price (C$) (from 4.00) 4.25¹
52-week price range 8.66 - 2.26
Market cap. (C$ m) 592.23
Enterprise value (US$ m) 1,395.87
Endako Encounters Water Issues; Cash Still Key Ahead of Mt. Milligan Startup
TCM reported 4Q12 adjusted loss of $0.11/share. Results compare to our estimate of a loss of $0.02/share and a consensus loss of $0.04/share.
Revenues of $99Mln were lower vs. our $101Mln on lower molybdenum sales (8.1Mln lbs vs. our 8.6Mln lbs). Molybdenum production came in at 7.7Mln lbs (in-line) while cash costs came in lower at $6.58/lb vs. our $6.91/lb. TCM noted that since December 2012, the Endako mine has experienced tailings management issues associated with frozen water in the tailings pond, which will negatively impact throughput levels through 1Q13. Endako write-down: As a result of weak molybdenum prices, lower expected ore grades and recoveries, and the water management issues, TCM recorded a $531Mln pre-tax non-cash write-down of PP&E at Endako. Guidance: TCM revised FY13 guidance downwards at Endako to 7.5-8.5Mln lbs (from 9-10.5Mln lbs) with total FY13 production guidance going to 27.5-30.5Mln lbs (from 29-32.5Mln lbs). Cash costs at Endako are now expected to average $10.75-12.25/lb (from $9.25-10.75/lb previously), with overall FY13 cash cost guidance moving to $6.50-7.50/lb (from $6.25-7.25//lb previously). Our FY13/14/15 EPS goes to $0.36/0.99/1.05 (from $0.09/1.12/1.10), reflecting capitalization of interest costs associated with Mt. Milligan until completion.
Cash conservation still critical. Mt. Milligan construction is 81% complete, with commissioning expected in 3Q13 and commercial production in 4Q13. TCM expects to spend $425-460Mln at Mt. Milligan in FY13, which includes $55-70Mln in additional capex due to scope changes (operations + residence). We estimate total remaining Mt. Milligan capex at $500Mln, which we expect will be funded from cash on hand ($527Mln) and the remaining proceeds from the gold stream transaction with Royal Gold ($111.9Mln). We estimate that TCM will exit FY13 with a trough cash balance of ~$135Mln based on the Credit Suisse moly price forecast of $12.50/lb and ~$107Mln at spot moly prices ($11.25/lb).
We have revised our model to reflect new operating guidance and are now capitalizing interest costs thought 4Q12. Our revised TP of C$4.25 (from C$4) is based on 0.8x our revised NAVPS of C$6.45, which includes future dilution from tMEDS.